No need to remind traders of recent events in the EU which have triggered a correction in the stock markets in recent weeks, I’m sure. How far can this bull market correction go though?
Let’s start with a look at the Dax futures. The chart below shows the recent 3 month correction in which we have lost almost 1800 points from a high of 12,429 to a low of 10,650 today . Clearly we are in a short term bear trend, which has gained momentum on the downside in recent weeks due to worries over a Grexit.
What you can also see from the chart above is we are approaching good support from the 200 day moving average at 10,630/10,625. In fact just above there. I also have a strong Fibonacci support level at 10,667. Therefore we have clearly tested a very important longer term support level today and so far as I write, this has held perfectly. As we become oversold on the daily chart. I think there is a very strong chance that this may mark below for the three month correction.
Of course, all stock markets are in a longer term Bull trend since 2009. If I am correct & this does mark below for the correction, a push back above 10,870 would be the first positive signal and we can then target 11,070. Above here I would be looking for a retest of two week highs around 11,300/330 area and this will be a significant challenge to Bulls. Will need a sustained break above this level, to be more confident that Bulls have resumed control of this market.
Failure to hold above 10,600 and in particular a weekly close on Friday, below here is likely to keep the bears in control.
The Emini S&P has managed hold important support around the 2035/2030 level this week. American markets have been less affected by the problems in Europe and indeed. The E-mini S&P has any corrected over the past 2 to 3 weeks, losing around hundred points. At this stage it is just a healthy correction in the bull market and I am seeing signs that this could now hold the downside & we could stage a recovery into the end of July. Above 2055 is more positive and targets resistance at 2079/2082. A push above here is an added positive signal but we run into quite strong resistance around 2090/2095.
However, a sustained break below 2030 would signal the bears remain in control of this market in the short-term at least. In particular a close below here on Friday night would signal further losses into next week, potentially targeting 2020 then good support at 2012/2008. If we fall this far, there is a good chance that this level will mark the end of the correction for this market.
The Emini Dow Jones is not testing any important support levels that I can see on my charts, but ran seeing is buying interest around 17,370/17,354 this week. Each time we have dipped to this level this week, buyers have stepped in and pushed the market sharply higher as you can see in the chart below.
I always say that technical analysis is an art not a science. It is my job to try to put the pieces of the puzzle together to try to work out the likely direction of the next significant move. As I have stated above, there does appear to be a good chance that stock markets can start to build a recovery with indications that buyers are willing to step in at these levels. For the Dow Jones however, if we break lower I see the next potential downside target at 17,166.
As I write we are trading in the 17,500 area , although in these volatile conditions we could be a long way from here by the time you read my article. A sustained break and close above 17,730 would help to convince me of more positive outlook in the short-term at least. We could then go on to target strong resistance around the 17,950/17,960 area.